Deficit Financing and Economic Return to Public Expenditure in the CEMAC Member Countries

This paper examines the long-term association between the productivity of public expenditure and sources of deficit financing using panel data covering five CEMAC member countries for the period 1980 to 2018. Addressing issues of cross-sectional correlation and panel heterogeneity associated with panel data analysis alongside panel cointegration, the Fully Modified Ordinary Least Squares and Dynamic Ordinary Least Squares were employed. The findings reveal that each unit of external debt inflow increases the productivity of government recurrent spending but reduces that of government spending on investment although the effect of loans from domestic banking system is salutary. Debts raised via other sources such as special, excess reserves and privatization renders government investments productive. Thus, borrowings from domestic banking system can be more sustainable and consequently the study suggests that both external donors, policy makers and internal stakeholders, instead of dishing out more credit to CEMAC governments, should focus efforts on improving on the monitoring of such loans that are granted to ensure judicious use.